A political agreement reached on the Money Market Fund Regulation was signed-off by the Council of Ministers on December 7th in a meeting of EU Ambassadors (COREPER) and on December 8th by the European Parliament’s ECON Committee. These votes followed an original proposal by the European Commission in September 2013.
According to a press release, “EFAMA is appreciative of the work done and time spent by EU policymakers, which has resulted in a more workable outcome than the initial proposal, for European investors, MMF managers and the Capital Markets Union more generally.”
Peter De Proft, Director General of EFAMA commented: “EFAMA members manage both VNAV and CNAV Money Market Funds. From the outset, we have indicated that a proportionate and balanced Regulation which ensures the viability of both CNAV and VNAV MMFs can support alternative sources of financing to the real economy, a key focus of the European Commission’s flagship initiative on a Capital Markets Union.”
He continued: “In terms of CNAV MMFs, we welcome the creation of the LVNAV product which has the possibility of offering investors a real alternative to European CNAV Prime MMFs. Equally important is the retention of a workable government CNAV regime in different currencies. For the VNAV industry, a number of serious operational challenges have been minimised. However, the MMFR is by no means a panacea for either the industry or investors in MMFs”.
One noteworthy concern for both sides of the industry are the liquidity calculations of MMFs. EFAMA believes that the lack of a principles-based approach on liquidity will make it difficult to determine whether the arbitrary thresholds set in the final political agreement will be workable in different market scenarios.
EFAMA also regrets the agreement’s rejection of MMFs being able to operate as funds of funds, an important mechanism used by many VNAV managers for diversification purposes, and points out to some outstanding concerns on how the exemption from the 10% diversification limit of assets in deposits would work.
Finally, there are some practical difficulties with the ‘Know Your Customer’ requirements and the periodic reviews of the internal credit quality assessments will, in EFAMA’s view, not be workable for smaller players on the market.
Peter De Proft concluded: “There is no doubt that today’s MMFR result is a better outcome than the initial European Commission proposal. However, one cannot ignore the number of question marks on the potential consequences of different parts of the agreement. It remains to be seen whether smaller players will be able to continue operating, given the more elaborate compliance and disclosure requirements, combined with low business margins”.
. Michelle Scrimgeour, New CEO EMEA at Columbia Threadneedle Investments
Columbia Threadneedle has appointed Michelle Scrimgeour as chief executive officer, Europe, Middle East & Africa (EMEA) and CEO of Threadneedle Asset Management Limited.
She will also join the executive leadership team of Ameriprise Financial, Columbia Threadneedle being the global asset management group of Ameriprise Financial.
Scrimgeour joins from M&G Investments, where she holds currently the roles of chief risk officer and director of M&G Group Limited.
Prior to joining M&G, she worked at BlackRock where she was a member of the European executive committee which led the firm’s $1trn EMEA business and oversaw the integration of BlackRock and BGI in London.
Formerly, she has also been chief operating officer for international fixed income; global head of Fixed Income Product; head of Alternative Investments and held senior roles in the quantitative equity and transition management businesses of Merrill Lynch Investment Managers and Mercury Asset Management (now known as BlackRock).
Commenting the appointment, Ted Truscott, global CEO of Columbia Threadneedle, said: “Michelle joins Columbia Threadneedle at an exciting time as we further build our global business and continue to focus on delivering successful investment outcomes and solutions for our clients.”
As of 30 September 2016, Columbia Threadneedle managed €416bn in assets.
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.
Regarding non-standard monetary policy measures, the Governing Council decided to continue its purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of March 2017. From April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If, in the meantime, the outlook becomes less favourable or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the programme in terms of size and/or duration. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP.
To ensure the continued smooth implementation of the Eurosystem’s asset purchases, the Governing Council decided to change some of the parameters of the APP. In addition to the extension of the programme, the following parameters will be adjusted on 2 January 2017:
The maturity range of the public sector purchase programme (PSPP) will be broadened by decreasing the minimum remaining maturity for eligible securities from two years to one year.
Purchases of securities under the APP with a yield to maturity below the interest rate on the ECB’s deposit facility will be permitted to the extent necessary. The implementation details will be worked out by the relevant committees.
CC-BY-SA-2.0, FlickrPhoto: Mark Morgan
. 2017 Outlook: Optimistic, but Not Euphoric
Optimistic, but not euphoric, is how Stefan Kreuzkamp describes his outlook for the international financial markets over the coming year. Yields only in the mid single figures is the best that can be expected right across all asset classes, according to the Chief Investment Officer at Deutsche Asset Management. Correct selection and diversification of investments will be even more important than last year. In principle, Deutsche AM favours investments with strong income components – such as good payers of dividends, selected higher-yield bonds as well as alternative infrastructure and real estate investments. “We are not pinning our hopes for economic growth and capital market returns very high for 2017. Having said that, we have no concerns that we will see recession in the major economic regions. However, political and central bank actions may continue to prompt short-term dips in the market,” said Kreuzkamp.
The political scene remains the biggest unknown in Kreuzkamp’s view: the unresolved Brexit issue and elections in some key European countries mean that the spotlight is firmly back on the future of the European Union (EU) as well as nationalism and protectionism. In recent times, EU opponents have gained some ground. Regional conflicts, such as Syria and Eastern Ukraine, continue to inflate and to rage. This is topped by Russian and Chinese foreign policy ambitions.
Politics shapes markets
Kreuzkamp believes that developments in the US are extremely important. In his view, President-elect Donald Trump is entirely capable of shaping the markets in a sustained way. This is especially true as a Republican-dominated congress could grant him considerable room for maneuver. “A combination of tax cuts, deregulation and infrastructure projects could stimulate the US economy to the extent that this boost could continue for eight or even nine years. But this will bring inflation,” said Kreuzkamp.
The financial markets have already given their initial reactions. But it is also conceivable that investor enthusiasm could soon fade somewhat. On the one hand, this could be the result of plans will not be executed as quickly as many in the markets would hope, and on the other hand, the flip side of Trump’s policies could rear its head again – for example restrictions on free global trade. But it is a matter of pure speculation if Trump really will, or will be able to, pursue protectionism – isolation would squeeze the competitiveness of American companies if costs were to increase. In this respect, Deutsche AM expects to see the pace of growth and inflation pick up only slightly during 2017. “We will be reviewing all our positions regularly in line with US political developments. We are fully aware of the President-elect’s potential to surprise – in both directions. Politics shapes markets”, explained Kreuzkamp.
In global terms, he expects to see growth of 3.5 per cent, which would make 2017 the eighth consecutive year with growth above 3 per cent – something last seen in the 1960s. An economic upturn is also expected in the Eurozone. For 2017, Deutsche AM expects to see growth of 1.3 per cent – mainly driven by consumption.
Strong dollar
In the bond and currency arena, this coming year will initially be marked by even more divergence in central bank policies with a knock-on impact for the US dollar. Two further interest rate hikes are anticipated in the US – following the move in December 2016 – yet the EU is expected to remain at its low levels and continue to actively pursue its bond buy-back program well into next year. Nevertheless the so-called tapering phase may then begin.
Next year the expectation is that the US dollar will remain strong. “We are assuming that the lowest interest rate is now behind us, but we are not counting on sustained increases. In 2017, key European countries and the US are likely to see negative overall yields from sovereign bonds. Interest rate divergence between the Eurozone and the US is likely to increase. In the medium term, we are not convinced that this era of very low interest rates is at an end, although 2016 may well have marked the lowest point for interest rates,” said Bill Chepolis, Head of Fixed Income EMEA at Deutsche AM. From an investment point of view, Deutsche AM continues to pursue its preference for corporate bonds in Europe and the US, as well as sovereign bonds from peripheral European countries. Within the emerging markets grouping, there are attractive hard currency sovereign bonds, even if these are subject to a higher level of price volatility.
Manage risk actively
Deutsche AM estimates the international equity markets will achieve single digit growth, but the situation differs widely across the important markets with US indices recently setting new records. Unfortunately any prognosis remains very difficult because of the uncertainty surrounding Trump policy. US equities could indeed benefit from deregulation and a new fiscal program, but this could be subdued by a strong dollar and wage pressures. Rising interest rates would tend to preclude increasing equity prices. In emerging markets, a higher US interest rate is just one issue that could fuel uncertainty. Having said that, emerging markets are witnessing an economic recovery which could benefit European equities, most especially in Germany, emphasised Thomas Schüssler, designated Co-Head of Equities at Deutsche AM. He points out that recent corporate figures out of Europe have started to look promising again. At the moment, stock exchanges have priced in a degree of political risk which explains the gap in valuations with the US. However, Schüssler believes it is precisely this that offers potential for a positive surprise.
Overall, volatile and sideways-moving markets tend to be a rich source of opportunities if investors are active, selective and tactical. In particular multi-asset investments should prompt considerable demand from investors: “With prospects of returns so poor, investors have to be prepared to actively manage risk – in the year to come this will be the key to successful investment. The challenge lies in optimising the risk versus a stated return objective”, said Christian Hille, Head of Multi Asset at Deutsche AM.
Foto cedidaCarlos Albiñana, socio de Jones Day. Carlos Albiñana Joins Jones Day in Madrid
Jones Day has hired Carlos Albiñana to the Firm’s Tax Practice in its Madrid Office.
Albiñana provides clients tax advice on capital markets, M&A and restructuring, banking and securitization, real estate, derivatives, project finance, and asset-finance transactions. He also has substantial experience in tax litigation and incentive schemes.
“Carlos is an excellent addition to our Tax Practice,” said Joseph A. Goldman, Co-Leader of Jones Day’s Tax Practice. “With more than 25 years of experience providing local and cross-border tax advice for global clients, Carlos has a well-deserved reputation as a leading tax lawyer in Spain. His arrival further expands our capabilities to offer clients a full range of tax-related transactional services in Spain.”
Albiñana has represented numerous clients in their tax structuring in Spain, advising leading companies in the financial, industrial, energy, telecommunications, and construction sectors. He has extensive experience in cross-border transactions working with clients to structure their investments in the most tax-efficient manner.
“The addition of Carlos to our office in Madrid will strengthen our Tax Practice, as he joins our senior tax counsel with years of experience advising our clients. He will be of great help to our M&A, Banking & Finance, and Real Estate teams” said Mercedes Fernandez, Partner-in-Charge of Jones Day’s Madrid Office. “We are delighted that Carlos joins us as we continue to focus on providing exemplary client service.”
Albiñana is a recognized leading lawyer by Chambers Europe and Best Lawyers in Spain. He is also a professor at the IE Law School where he regularly lectures and leads a number of executive tax programs.
Jones Day is a global law firm with 44 offices in major centers of business and finance throughout the world. Opened in 2000, Jones Day Madrid is a full-service office with more than 40 locally-qualified Spanish lawyers and significant experience handling a wide variety of national and cross-border transactions and disputes.
Foto cedidaAris Prepoudis, courtesy photo. Aris Prepoudis, New CEO of RobecoSAM
RobecoSAM, the investment specialist focused exclusively on Sustainability Investing (SI), has appointed Aris Prepoudis as CEO from January 1, 2017, subject to FINMA approval. He will take over from Reto Schwager, who has led the company as interim CEO since August 2016. Schwager will continue to perform as Global Head of Private Equity and a member of the Executive Committee.
Albert Gnägi, PhD, Chairman of the Board of Directors, RobecoSAM: “The Board of Directors is delighted to appoint Aris Prepoudis as the new CEO for RobecoSAM. Prepoudis brings to the company the ideal set of skills, an entrepreneurial mindset and a passion for Sustainability Investing. These qualities will be instrumental for continuing innovation and fostering profitable growth opportunities at RobecoSAM. The Board of Directors would also like to thank Reto Schwager for his commitment as RobecoSAM’s CEO ad interim, and for providing consistent leadership during the transition.”
Aris Prepoudis, appointed CEO, RobecoSAM: “I am proud and honored to be named as CEO of RobecoSAM, the pioneer and global leader in Sustainability Investing for over two decades. I am looking forward to shaping the SI landscape by delivering cutting-edge asset management solutions to our clients. As the CEO, I will focus on profitable growth, further develop our expertise and leverage on the burgeoning interest in Sustainability Investing around the world.”
Aris Prepoudis, a Swiss national, served until recently as CEO of Vescore (formerly Notenstein Asset Management), an asset manager specializing in sustainable and quantitative investments. Previously, he was Head of the Institutional Client Business Unit at Notenstein Privatbank, where he led the consolidation of all the asset management activities of Raiffeisen Switzerland into Notenstein Asset Management. From 2000 to 2013, Prepoudis worked at Bank Sarasin & Cie AG in various senior positions, culminating in the role of Global Head of Institutional Clients. He began his career at STG Cooper & Lybrand (now PwC) and subsequently worked at ATAG Ernst & Young as an audit manager for Swiss Mutual Funds and Banks. Prepoudis holds a Bachelor of Business Administration from the University of Applied Sciences in Basel.
Foto cedidaPhoto: Mark Mobius, Executive Chairman at Templeton Emerging Markets Group / Courtesy photo. Mobius: “A Period of Bilateral Agreements between the U.S. and Emerging Markets is Opening Up, offering Great Opportunities, even for Mexico”
“Mexico is not going to disappear because Trump has arrived at the White House. Its oil will still be there, and so will its manufacturing capacity, and if the U.S. market closes up to it, there will be other markets that want to buy products Made in Mexico, especially with such a cheap Peso.” This quote sums up the opinion which Mark Mobius, Executive Chairman at Templeton Emerging Markets Group, and a Portfolio Manager of Franklin Templeton’s emerging equity strategies since 1987, holds on emerging markets following Trump’s victory: we must not fear a debacle.
In an interview with Funds Society, Mobius talks about one of the main concerns of investors in emerging markets looking forward to 2017: what will happen to these markets once Trump is president? Returning to Mexico’s case, which is probably the most vulnerable country due to its hefty trade balance with the United States: “Given that Trump is primarily a businessman, I think he will reach a bilateral agreement with Mexico that will ultimately be beneficial to the country. Problems related to drug cartels and organized crime are common for Mexico and the United States, so it makes sense for both countries to work together to solve them.” The solution, Mobius says, may involve negotiations to help normalize the movement of people, “but I think they will eventually come to an understanding.” In fact, for Mobius, Mexico now offers tremendous opportunities: “The Mexican peso cannot drop much more from current levels, at least on a sustained basis. We estimate that it is already slightly undervalued.”
On comparing Mexico to Brazil, one of the markets that Mobius has favored in its emerging equity strategies for a longer period of time, he points out that the Brazilian economy has suffered a much greater punishment than Mexico, with two consecutive years of GDP contraction, and is now in full recovery phase with ongoing structural reforms that Mexico has yet to undertake. “Mexico’s dialogue with the Trump administration could be a catalyst for the adoption of these reforms, which in the end would be very beneficial to the country,” says Mobius.
As for the Asian continent, Mobius does not see a negative effect for China due to Trump’s victory. “The countries receiving the most aid from the United States are Japan, South Korea, and to some extent also the Philippines. With Trump, these countries may have to redefine the terms of their relationship with the United States by increasing their contributions, so they may face additional pressure in their budget that should be monitored.”
The United States spends about USD 5 billion a year on maintaining its military bases in Japan, and another USD 2 billion on bases in South Korea. Donald Trump has questioned this expenditure throughout his campaign, as well as the usefulness of these military bases to maintain stability in the Asia-Pacific region. Political experts in this region point out that China has been hoping for the United States to withdraw its troops from Japan and South Korea for a long time, which now seems more plausible.
Mobius believes that China has favored Trump over Clinton from the very beginning, because it believes that he is willing to negotiate. “We will not see so much cold-war-like rhetoric in China-US relations, so negotiations will be easier.” Something similar, but even more pronounced, happens with Russia, a country with which the United States has reestablished dialogue. “If Trump is not going to allocate so many resources to the Middle East, dialogue with Russia becomes essential.”
Overall, Mobius believes that the multilateral treaties in which the United States participates will be weakened, but many opportunities are opening up in US bilateral agreements with individual countries, which will be positive. He does not anticipate a steep crises in emerging market equities and forecasts a return of inflows once specific measures by the president-elect, or the absence of them, become public.
Faced with the FED’s rate hikes – which seem much more likely after Trump’s victory- it is foreseeable that in future US Treasuries will return to a much more attractive yield than currently, which will be beneficial for emerging markets equities,” says Mobius. “There is a perception that equities fall when the FED raises rates, but if we look at history we see that there is no correlation.”
Pixabay CC0 Public DomainFoto: LinkedIn
. OppenheimerFunds lanza una plataforma UCITS para hacerse global
OppenheimerFunds has announced the appointment of Doug Stewart as Head of European, Middle East and Africa Distribution, based in London. The appointment represents a further expansion of OppenheimerFunds’ International Distribution platform, which also includes the launch of a UCITS-Fund platform. Stewart will be responsible for marketing and distribution efforts throughout Europe, the Middle East and Africa. He will report to Steve Paddon, Head of Institutional & International at OFI Global Asset Management, Inc., a subsidiary of OppenheimerFunds serving institutional investors and consultants throughout the world.
Paul Eisenhardt, Head of International Distribution (ex EMEA), is responsible for the distribution of international solutions and developing client relationships in Canada, Latin America and the Asia-Pacific region. Eisenhardt also reports to Paddon.
The launch of OppenheimerFunds ICAV, an Ireland-domiciled UCITS platform and its sub-funds will focus on investment opportunities in global and developing markets equities, providing new choices to clients and deepening relationships with consultants and investment platform providers. The first of these strategies to become available is the company´s flagship global value, global equity and developing markets equity funds which launched last week.
“We are pleased to bring some of our most compelling investment strategies to an international audience, to help meet the needs of our evolving client base,” said Art Steinmetz, Chairman and CEO of OppenheimerFunds.
“Expansion to non-U.S. markets is a core element of our long term engagement with institutional investors,” said John McDonough, the firm´s Head of Distribution. “We’re delighted to welcome Doug to the team as we build our reach globally, and continue our focus on developing long-term client-centric solutions that differentiate us in the marketplace.”
Paddon added, “Doug and Paul’s appointments deepen the talent base of our dedicated institutional team, with their proven track records working across a variety of client segments. We look forward to increasing our engagement with institutional clients internationally by building access to our investment capabilities.”
According to Andrew Bosomworth, PIMCO’s head of portfolio management in Germany, the European Central Bank (ECB) faces a tricky challenge at its Governing Council meeting. On December 8th, it must decide on the minimum amount of quantitative easing (QE) needed to return inflation to target – and in what size doses it should be administered.
So far, the ECB has conducted two rounds of QE and committed to buy €1.74 trillion in assets, mostly government bonds. Phase one began in March 2015, spanned 13 months and saw €60 billion in asset purchases per month; phase two began in April of this year and is scheduled to run for 12 months at a rate of €80 billion per month.
The PIMCO specialist believes striking the right balance between the stock (of assets to purchase) and flow (the rate of purchases) will be key. “Both current inflation and projections for next year remain far below the ECB’s just-under-2% target, supporting the argument for more QE at a high monthly purchase rate. But monetary policy works with a lag, and because the ECB has already administered a lot of easing, further purchases risk creating asset bubbles and hurting savers – an argument for phasing out QE as soon as possible.”
In his opinion, there may appear to be little difference between purchasing €80 billion in assets per month for six months and purchasing €60 billion in assets for nine months (two options likely to be on the table). But while the ECB might be tempted to reduce the monthly purchase rate now, he thinks maintaining higher monthly purchases for a shorter period is more likely to square the stock-versus-flow circle, for three reasons.
First, maintaining €80 billion in monthly purchases minimizes the risk of tightening financial conditions, even if it involves purchasing a smaller total stock of assets. Financial markets are sensitive and might interpret a smaller purchase rate as a signal that QE will stop soon.
Second, committing to a shorter-term policy gives the ECB more flexibility to change course. If it turns out that nominal economic growth recovers strongly and durably – say, above 3.5% – the ECB could slow purchases during the final quarter next year and stop altogether by mid-2018. If growth remains weak, it could opt to extend QE into 2018. We see little cost to postponing the decision.
Third, interest rates and the euro are likely to rise for fundamental reasons independent of QE once growth recovers. Winding down QE under those circumstances would reduce the risk of tighter financial conditions that could push the economy back into recession. From a risk management perspective, we think it’s better to delay reducing monthly purchases until there is a high degree of confidence in economic forecasts.
Owing to the scarcity of eligible Bunds, Bosomworth believes any extension of QE will likely require relaxing some of the ECB’s rules for purchasing government bonds, and so the ECB may change its rules so that it can buy bonds at yields below the deposit facility rate and in quantities that deviate from its capital key. “With so much government debt on its balance sheet and peripheral banking systems (especially Italy’s) dependent on ECB liquidity as never before (see chart), a sovereign debt restructuring would be a crisis for the ECB. We therefore think relaxing the 33% cap on purchases for any one bond or issuer is less likely, and may be left in the toolkit for the next recession. Let’s hope that’s a long way away.” He concludes.
Pixabay CC0 Public Domain. Active European Equity Funds Set to Continue Outperforming U.S. Counterparts
European equity funds with conviction and strong performance could lead the way in reversing outflows in the sector caused by a combination of Brexit, stretched valuations, and weak earnings that has sent investors elsewhere, according to the latest issue of The Cerulli Edge – European Monthly Product Trends Edition.
Cerulli Associates, a global research and consulting firm, notes that active equity funds in Europe have fared considerably better than their counterparts in the United States. A study by S&P Global shows that 90% of active U.S. equity funds tracking the S&P 500 underperformed the index in the three, five, and 10 years to the end of June 2016. In contrast, 63.8% of active equity funds in Europe underperformed the S&P Europe 350 over three years.
“To put it in a more positive way, over 36% of active funds matched or beat the index. Whether it is the result of the more disparate nature of the European markets or other factors, Europe clearly has more active funds outperforming than the United States,” says Barbara Wall, Europe managing director at Cerulli.
She points to companies such as Allianz Global Investors with its sizable funds that have outperformed over one, three, five, and 10 years. “The funds’ clear sector stances, such as overweighting industrials, seem to have paid off. Some funds can achieve outperformance just by underweighting one major sector.”
The performance of the finance sector over the past couple of years serves as an example, according to Wall. “Amundi’s Europe Conservative fund has underweighted this sector, which makes up just 4.45% of the portfolio. In the three years to September 2016 the fund gained 29.5%, compared with 18.4% for the MSCI Europe, in which financials are 19.5%.”
